With elections beckoning, politics over sugarcane arrears has gained traction once again. But it is unlikely to really address the troubles dogging the sugar industry. Mills owe farmers in Uttar Pradesh over Rs 10,000 crore this season with western UP constituencies headed to polls in the first phase accounting for nearly half this amount. The situation is no different in Maharashtra, the other major sugarcane grower. Basically while global sugar prices are low, state advised prices (SAPs) of cane are high. That this lack of syncing creates several problems is elementary economics.

Sugarcane farmers, be it the Jats of western UP or the Marathas of western Maharashtra, are politically influential and every state government, of whatever political orientation, surrenders to their demands. This explains the relatively high prices that cane earns for farmers compared to kharif crops. But high SAP is highly distortionary, forcing mills to pay farmers cane prices that cannot be recovered from current market prices of sugar. This increases the danger of more mills closing down: already mills in Maharashtra are selling sugar below the MSP set by the Centre. Obviously the closing of mills is not at all in the interest of farmers.

Experts have long emphasised that the only real solution is to gradually eliminate the state induced distortions running through the sugarcane ecosystem. Congress president Rahul Gandhi and general secretary Priyanka Gandhi Vadra are attacking BJP government in UP over sugarcane arrears. When in opposition BJP used to loudly cry the same. In effect, this politics translates into repeated bailout packages and evermore NPAs. Without the company of reforms, this is just money down the drain. To begin with, what is needed is syncing administered prices to the actual market situation.